Is spot commodity exchange trading model illegal?

Since 2012, spot commodities trading venues have been sprouting up and growing rapidly everywhere around the country, but they have also been surrounded by fierce debate. This is because the main objective of many of those trading venues is not in fact the circulation of commodities, but rather serving as a platform for speculation. The occurrence of a large volume of customer losses and complaints has given rise to a continuous string of disputes in the industry, with some of those cases even ultimately evolving into criminal cases.

In recent years, as regulation has become more stringent, the opening of cases for, and the trial of cases of, the “crime of illegal business operations” in connection with spot commodities exchanges have become more numerous. However, despite their all being similar cases, in practice, the judgments rendered by the courts have diverged, sometimes substantially. There are also instances where cases have failed to go forward after being opened. Theoretical and practical opinions are also not in complete agreement with respect to the issue of the compliance of these exchanges. This column proposes to conduct an analysis of the criminal liability disputes that such exchanges could be involved in, in the course of investment.

Based on the definition in relevant regulations and documents, the term “spot commodities market” means a lawfully established venue or online trading platform that has information, logistics and other complementary service functions, and where buyers and sellers openly carry on regular or periodic spot commodities trading activities. The main forms of trading on spot commodities markets in China are trading by agreement, and trading by one-way bid. Trading that has over-the-counter trading, spot continuous (deferred) trading or margin trading features is illegal trading.

Yang Guang is a partner and Zhang Xiaoke is an associate at Lantai Partners